( b ) $ 720.82 ( c ) $ 758.76 ( d ) $ 798.70 ( e ) $ 838.63
3 . Question : ( TCO B ) The Congress Company has identified two methods for producing playing cards . One method involves using a machine having a fixed cost of $ 10,000 and variable costs of $ 1.00 per deck of cards . The other method would use a less expensive machine ( fixed cost = $ 5,000 ), but it would require greater variable costs ($ 1.50 per deck of cards ). If the selling price per deck of cards will be the same under each method , at what level of output will the two methods produce the same net operating income ( EBIT )? ( a ) 5,000 decks ( b ) 10,000 decks ( c ) 15,000 decks ( d ) 20,000 decks ( e ) 25,000 decks
4 . Question : ( TCO B ) Firm L has debt with a market value of $ 200,000 and a yield of nine percent . The firm ' s equity has a market value of $ 300,000 , its earnings are growing at a rate of five percent , and its tax rate is 40 percent . A similar firm with no debt has a cost of equity of 12 percent . Under the MM extension with growth , what is Firm L ' s cost of equity ? ( a ) 11.4 % ( b ) 12.0 % ( c ) 12.6 % ( d ) 13.3 % ( e ) 14.0 %
5 . Question : ( TCO A ) Which of the following statements is CORRECT ?
( a ) If the underlying stock does not pay a dividend , it makes good economic sense to exercise a call option as soon as the stock ’ s price exceeds the strike price by about 10 %, because this permits the option holder to lock in an immediate profit .
( b ) Call options generally sell at a price less than their exercise value .
( c ) If a stock becomes riskier ( more volatile ), call options on the stock are likely to decline in value .